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Huhne warns of risk in prospectus laws

EUROPEAN Commission plans to rehash a controversial new directive on company prospectuses would leave too many powers in the hands of “incompetent” national regulators, the MEP in charge of the proposals has warned.

European Voice

7/24/02, 5:00 PM CET

Updated 4/12/14, 8:15 AM CET

The comments, from British Liberal Chris Huhne, follow moves by single market Commissioner Frits Bolkestein to change the draft law designed to give securities firms a ‘European passport’ to sell anywhere in the Union once their prospectuses are approved by a regulator.

Huhne said the plan, expected to be approved by the Commission late next month, would lighten some of the regulatory burdens on small companies entering the markets – a key concern of MEPs during the first round of intense debate on the law.

But the former economist said the proposals would force most firms issuing complex instruments, such as bonds, to register their prospectuses with novice local regulators in the country where they are incorporated – instead of allowing them to seek out specialists in another member state. At present, he said, firms have free choice over everything except shares. That means, for example, many companies issuing bonds choose to go through Luxembourg because of tax benefits and the body of expertise in the Grand Duchy.

Huhne, rapporteur on the issue for Parliament’s economic and monetary affairs committee, said that is the way it should stay, despite heavy lobbying by regulators in some member states who claim they should have powers over companies in their jurisdiction.

“I would be reluctant to have [free choice] limited,” Huhne said. “Although the Commission rather quaintly calls national regulators ‘national competent authorities’, unfortunately, in the real world, I am afraid they are often ‘incompetent authorities’.”

He said many of them “have no experience” in approving particular types of instruments traded in the European market.

That includes even the most sophisticated regulators, such as the UK’s Financial Services Authority (FSA) – seen by many as a model modern market watchdog. For example, Huhne said the FSA has no experience of approving prospectuses for ‘pfandbriefe’ – a type of corporate ‘IOU’ handled almost exclusively by regulators in Frankfurt and Paris.

Spanish regulators, meanwhile, have no experience of ‘medium-term notes’ and the Portuguese and the Greeks have no experience of approving prospectuses for ‘securitised bonds’.

Argued Huhne: “Each of them has a hole in its own experience and expertise – which is why it makes sense to encourage them to operate as a system, swapping information and really making the genesis of what, in the long run, will have to become a European system of regulators.

“If a Greek shipping company wants to issue a securitised bond, then we will all have to rush off to Athens to teach the regulators what a securitised bond is,” Huhne added.